The business model of SRS Entertainment is a hybrid model, which includes retailing entertainment and real estate. It includes construction and management of Multiplex, which includes Cineplex, shopping malls, coffee lounge, food court, health club etc.
The company’s first project SRS multiplex is a 3 screen multiplex with a shopping mall, which has commenced operation from November 12 2004. It is located on NH-2, Delhi-Agra Road at Faridabad 25 kms away from Connaught Place in New Delhi.
The average ticket price range from Rs.75 to Rs.150 and SRS has been able to sell or lease out all the shops in the complex. The company’s first retail store SRS Value Bazaar is proposed to be set up in the multiplex itself and is expected to commence operations in October 2005. SRS Value Bazaar would be a hypermarket in the form of a discount store concept.
Financials
For the year ended 2005 SRS generated revenue of Rs.7.65 crores for the period of 140 days in which it was operational. It generated revenue of Rs.2.19 crores for the same period. The company was able to generate net cash from its operations last year whereas so far for the quarter ended June 30, 2005 there is a negative cash flow. The annualized EPS last year has been Rs.4.43.
Objects of the Issue
The IPO is intended to raise money for the proposed expansion of the company. SRS will follow an owned, lease and franchise model which means that the various multiplexes that it will establish in the future would either be owned by them, leased by them or franchised by them.
The company plans to own 3 more multiplexes and the total cost of these facilities is estimated to be Rs.76.74 crores. These would be at Agra, Ludhiana and Muzaffarnagar. While the first two are expected to be operational from September 2007 the last one is expected to be operational in March 2008.
4 multiplexes are proposed to be operated under the lease model and the total cost for these are estimated at Rs.25.52 crores. Out of these two are proposed in Gurgaon and one each in Jodhpur and Amritsar. While the first one is expected to be operational in March 2006, the last three are expected to run from March 2007.
In addition to the above two SRS intends to run 5 facilities under the franchise model and the estimated cost for this is Rs.1 crores. These facilities are to be set up in Ambala, Jalandhar, Jaipur, Meerut and Panipat. The one in Ambala is expected to be operational in September 2006 while the one in Jaipur is expected to function from March 2007 and the rest all on September 2007.
Conclusion
SRS Entertainment is looking to establish its multiplexes in the Tier – II cities in India. This is based on the assumption that there is a latent demand for such services in these cities and also based on the fact that many IT and ITES companies are now choosing these locations for their offices and will provide youthful employees which can become the prospective customers for SRS.
While the idea is good and the company if successful will have a huge first mover’s advantage in these locations and can become immensely profitable, however the expansion that is being chalked about is quite huge and the company does not have proven track record in the field.
A lot would depend on the pricing of the IPO, which is not yet out. If the company does not intend to charge a huge premium to take advantage of the booming stock market conditions one should hold this stock as a small percentage of their portfolio for the long term keeping in mind that it is a high risk and high return stock.
